ICE Mortgage's leader on the secondary market's evolution

December 3, 2024 12:23 PM

Tim Bowler, president of ICE Mortgage Technology, draws on a wide range of capital markets experience to lead a key industry player with ties to the New York Stock Exchange.

Bowler has seen his share of business cycles in various roles, which span work on Wall Street in the 1990s to posts at the Treasury amid the Great Financial Crisis.

ICE Mortgage Technology President Tim Bowler speaks at an industry meeting held at the New York Stock Exchange — ICE Mortgage Technology President Tim Bowler at an industry meeting

In a recent interview at the NYSE, Bowler explained how all this led him to his current role leading a division that brings together key industry systems Encompass, Surefire, MSP and more.

What follows is an interview with the ICE Mortgage Technology executive, condensed and edited for clarity.

Origins on Wall Street

Bowler: I was very lucky to start my career with a focus on the capital markets and risk management, because it has such a deep nexus to how the mortgage market operates. Essentially, nine out of every 10 loans that get made to fund a household buying or refinancing a home are either bought by Fannie Mae or Freddie Mac or backed by government agencies, and then those loans are ultimately put into securities funded by capital markets investors. That's unlike almost any other market around the world.

My first job out of college was at 60 Wall Street, which was then the headquarters of J.P. Morgan & Co. I worked in the financial controller's department in 1994. That was the last time, prior to what we saw more recently, that we had a significant upward rate cycle. It was a useful reminder recently that interest rates can go up, and they can go up fast.

I spent the bulk of my early career in the capital markets, particularly doing work around derivatives and financial risk management. I went to Goldman Sachs when I left J.P. Morgan and migrated into the banking function in the financial institutions group. It's there that I began covering banks, finance companies, Fannie Mae and Freddie Mac.

Public sector work during the Great Financial Crisis

Bowler: My true education when it comes to how the mortgage market in the United States works really began within the context of spending time with Fannie Mae and Freddie Mac prior to the Great Financial Crisis and seeing how those institutions went into conservatorship. The work before the crisis was about ensuring that the clients and the financial institutions that I worked with were well capitalized. Then after the crisis, it was all about cleaning up balance sheets and recapitalizing.

In 2011, I left Goldman Sachs to join the U.S. Treasury, where I had really three core functions. One was working with the Office of Capital Markets. The second was I went to work for the Office of Financial Stability. That office was responsible for the Troubled Asset Relief Program. TARP investments into financial institutions helped stabilize them coming out of the crisis. Of a more important note for the mortgage industry and given my job today were the housing programs that were associated with TARP. There were foreclosure prevention programs allocated substantial amounts of funding during that time period. I worked with those, and then lastly, I had an advisory assignment at the Treasury working with troubled municipalities and territories. I spent a lot of time working with folks from the city of Detroit after their bankruptcy.

Tackling a distressed property challenge in Detroit

Bowler: I left the United States Treasury in the summer of 2015 and rather than immediately returning to the private sector, I went to go work for Mike Duggan, who was then the mayor of Detroit, at the land bank. The land bank is an organization that basically took control or took ownership of properties that were foreclosed in the city of Detroit for tax purposes during that time. Mayor Duggan famously made up business cards from me that said, "Tim Bowler summer intern," because he found it to be hilarious that a former Goldman Sachs executive and senior official at the Treasury Department would come and work for him for the summer. I just wanted to do it. It was important to me. I got to see when mortgage lending goes wrong and how that facilitates a vicious cycle of neighborhood deterioration at the same point in time. I've seen how mortgage lending, you know, when used appropriately and in a sustainable manner, can help neighborhoods come back.

Mayor Duggan was very frustrated, particularly in 2014, that there was limited mortgage capacity in the city of Detroit. He came to see me with other officials pushing to have a special lending program that would allow for mortgages to be made against properties, even though their appraisal values out of the gate were going to be very, very low. There were no comparables.

I explained to the mayor that it would be a sisyphean task to try to get Fannie Mae and Freddie Mac to buy, or government agencies to back, mortgages that have uncertain property values. He told me I needed to come up with a solution. What we ended up doing involved teams from Treasury, the land bank, Home Depot, Rocket Mortgage and founder Dan Gilbert's foundation.

Properties had to be sold on a turnkey basis. It was next to impossible for most families to rehabilitate the properties themselves. Those properties were then sold at auction to create comparables. Appraisers could then use those as a way to set home values in Detroit, and mortgage lending could start again.

I then went back to resume a banking career, and happened to meet the executive team at Intercontinental Exchange. They needed somebody to run their benchmarking business over in London. In February of 2023, I got asked to work in the mortgage technology division.

The value in mixing high-level and front-line experience

Bowler: ICE is all about providing solutions to market infrastructure problems that have just too many points of friction or are far too riddled with inefficiencies. There was a better way to manage risk around energy prices, such as oil or natural gas, and then there was a better way to manage how things like cocoa and cotton were managed. We're trying to make the mortgage system as efficient as it can be, knowing it has a unique set of limitations, which means you have to do things in increments.

I'll give you a tangible example. It makes all the difference in the world to make contact with a household facing a hardship within the few weeks of one occurring. After multiple weeks or months go by, the household's willingness to engage tends to drop dramatically. Then if servicing has been transferred to somebody new, borrowers will pull back even more.

The most costly and risky aspects associated with being in the mortgage business is how you handle troubled servicing. Many of those households that are facing a hardship today have a ton of equity in their home, and if they're not getting the assistance they need, they might end up losing all that equity that's accrued to them in their underlying property. We're trying to identify these households through better data and create pathways to communicate.

Artificial intelligence’s potential for mortgages

Bowler: Ultimately, what generative AI or machine learning comes down to is just better database management. It's [a matter of] how you tie together nodes of information across either a single database, or ideally multiple databases, to help inform how you run your business better. It's looking at public records, economic and climate databases to be able to give mortgage lenders and servicers better information on how to engage with the underlying households that they count on as clients.

On how close the market can get to a zero defect mortgage

Bowler: The data sets are so rich and readily available now that lender and servicer clients can really put those to work in a much more dynamic way than they ever have in trying to optimize what is the best source of funding for the mortgages that they originate.

I'll give you an example. A household might be at the right stage of their life for a home equity loan. Under a risk management scenario, we have data sets that will flag a servicer if, even though the underlying first mortgage has a 3% note rate and is very affordable, there's been a number of liens that have been put on that property over the last couple years. The risks associated with that property mean you might want to put that on your watch list. In the past, you couldn't do that, but we've been able to tie a lot of those data sets together to be able to facilitate that. There's much better data mapping now that's available to servicers that we can help provide them relative to what existed back in 2007 and 2008.

Prospects for secondary market evolution

Bowler: Do we one day have exchange-traded mortgages? I don't know. What I do have a feeling is that inevitably, you're going to see more innovation and evolution in the mortgage market relative to where we are today.

We are a bit of a historical anomaly where the vast majority of mortgages in the United States have some nexus to U.S. government funding. I think the private markets, over time, will just continue to get more comfortable with providing liquidity and funding for mortgages.

A track record has been built within the context of mortgage origination practices that have evolved coming out of the Great Financial Crisis. Prior to the crisis, you had a private-label securitization market that was very competitive with government sources of funding.

I think you'll see over time, much greater interest from private investors in providing financing for mortgages as an asset class, as they've gotten comfortable with the underwriting standards that have evolved coming out of the crisis.

We have the capacity to support all different forms of markets. I stopped predicting what will end up happening with the enterprises, many, many, many years ago. You just need to be prepared for whatever the outcomes are.